Chinese PMI at 14 Month Low
The Purchasing Managers Index published today by Caixin Manufacturing has declined to 50.6, the lowest figure in 14 months. The index’s recorded trend does not paint a much better picture either. Following its 51.6 result in January 2018, the PMI has declined every single month. According to the head of one of China’s leading macroeconomic analysis companies, it has become clear, that China has to face growing economic pressure. Analysts added, that while governmental stimulus packages have kept the Chinese economy from declining, the outlook for growth has markedly worsened.
Fall Trading
As if taking a cue from the falling autumn leaves, the first trading day of September saw stock prices drop during the Asian trading session. The negative Chinese PMI wasn’t the only thing adversely affecting the market. The latest news coming from the foreign exchange market also caused investors to act cautiously. The Turkish lira’s temporary strengthening period seems to have come to a halt as the currency continued to decline, putting investors in a more bearish mood. The Nikkei, Hang Seng and KOSPI trio all suffered a decline of 0.7%. Meanwhile the Shanghai Composite and ASX also dropped by approx. 0.15%. This makes the third consecutive day when Asian indices closed in the negative.
Gold
The dawn of the digital age has caused gold to lose some popularity as an investment. News cycles are filled with cryprocurrencies, causing these digital products to over time build up a larger following than the classic precious metal. Gold was at its peak during the 2008 financial crisis, when it was above $1000 and high class hotels even had vending machines for physical gold. Could the price of gold decline during a period of rising inflation?
There’s no doubt that the strengthening US dollar cannot be ignored when discussing gold’s price trends, however, the correlation is not completely clear-cut. The movement of gold and the USD more or less shares the same direction, but not the intensity. The primary indicator of the US dollar’s strength is the dollar index. This year it moved from 92.25 to 95.05, an increase of only 3%. Meanwhile gold started from 1308 and dropped by 7.7% to 1200, decreasing by a significantly larger amount than how much the dollar strengthened, which suggests there additional forces at work. There is still a solid probability that the dollar’s strengthening will continue, due to rising interest rates and surprisingly positive economic data. That said, gold is in the right position to catch investor attention. The devaluing of peripheral currencies (TRY, INR, ARG) could lead to large ripples in the currency market which may rekindle interest in gold.
EURGBP
Brexit negotiations between the European Union and the United Kingdom have entered the final stage. The parties involved have only 2 months left to finalize the agreement. The main obstacle in its way is the UK’s domestic political situation, as support of Theresa May is far from uniform. It was recently announced that there will be no second Brexit referendum. Meanwhile the pound to continues to weaken as the deadline draws closer.
The exchange rate between the euro and the point has been moving in a narrow range, which many analysts initially regarded with the suspicion of manipulation. This mistrust was dispelled due to the declining trend of the pound had since June. The turning point was the 0.8837 resistance line. When price broke this line, it started the rising trend illustrated by the green channel. The moving average seems in line with the channel and its also evident that said moving average has caused price retests to reverse. Based on this trend, the euro’s continued strengthening seems more probable, making long positions attractive to many traders. The trend could still break once the Brexit agreement is finalized, if the market has a positive opinion of it.
Sincerely,
Laszlo | Market Analyst
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